Global reach of sovereign wealth funds.

• Author: Wolf, Greg
• Position: SPECIAL SECTION: International Trade

The global reach of the world's sovereign wealth funds continues to expand as more funds come into existence and the assets they hold grow apace. These government controlled investment vehicles vary considerably in size and scope, as well as by their particular investment strategies and policies, but they are, without question, a significant force in the markets and their impact can be felt in all corners of the world, including Alaska.

The source of the capital for these funds typically originates from excess foreign currency reserves earned through exports or from income derived from commodities such as oil and gas. China's sovereign funds would be an example of the former, while Norway's would be an example of the latter. By and large, Asian funds arose from export earnings, while Middle Eastern, European, and American funds arose from commodity earnings. Most of these funds invest globally. Some funds dedicate a certain percentage of their portfolio for investment in their own countries.

Valuable Holdings

Current estimates value the holdings of the sovereign wealth funds at just over $7 trillion. These holdings encompass a wide variety of financial assets including stocks, bonds, real estate, precious metals, and other investable instruments. They also include so-called "alternative" investments managed by hedge funds, private equity, and venture capital funds.

The number of sovereign wealth funds, and their assets under management, continues to grow: indeed, since 2005 forty new funds have been established, and between 2007 and 2014 the assets of the sovereign wealth funds has more than doubled from $3.4 trillion to $7.2 trillion.

While Alaska was not the first American state to establish a sovereign wealth fund--that distinction belongs to Texas--it is home to the largest sovereign fund in the United States; with assets of some $54 billion, the Alaska Permanent Fund ranks 24th among the world's funds. To put this in perspective, at $825 billion, Norway's Government Pension Fund Global is the world's largest fund. Norway's fund is widely expected to become the first trillion dollar fund, perhaps as early as 2020 (although this date may have to be pushed back due to the significant slump in oil revenues).

The Norwegian fund has holdings in nine thousand companies spread across seventy-five countries. In Europe alone, it has a 2.4 percent average stake in all publically listed companies. Globally, the funds own 1.3 percent of all...